Tennessee Court of Appeals Holds Defendant Has the Burden of Offering Alternative Measure of Damages to Prove that Plaintiff’s Measure of Damages is Unreasonable

Gus Sara | The Subrogation Strategist | July 5, 2018

In Durkin v. MTown Construction, LLC, 2018 Tenn. App. LEXIS 128, the Court of Appeals of Tennessee considered whether the lower court properly took judicial notice of an alternative measure of damages to the measure of damages advanced by the plaintiff. The Court of Appeals held that the defendant has the burden of offering evidence of alternative measures of damages if it seeks to argue that the plaintiff’s measure of the damages is unreasonable. The Court of Appeals found that the lower court erred in taking judicial notice of alternative measures of damage when the defendant failed to meet its burden of proof. The court’s holding establishes that, if the defendant does not offer evidence of alternative measures of damage, then the measure of damages introduced by the plaintiff will apply.  

In Durkin, the plaintiff hired defendant MTown Construction (MTown) in 2016 to replace the roof of his residence. After removing the original roof, MTown placed tarps over the structure to prevent water intrusion until the new roof was installed. Subsequently, the interior of the home incurred significant water damage during a rain event. Mr. Durkin sued MTown for the water damage, alleging that MTown inadequately protected the structure from water intrusion. At trial, the plaintiff introduced evidence of the cost to repair the structure, which totaled $118,926.12. MTown did not offer any evidence of alternative measures of damage. The trial court found MTown liable for the damage, but decided that the appropriate measure of damages was the diminution of the market value of the property. The judge took judicial notice of certain aspects of witness testimony[1] to conclude that the diminution in the market value of the home before and after the loss was $144,000, which was the full value of the home as per the plaintiff’s testimony. The judge then subtracted the assessed annual tax of $25,500 and awarded the plaintiff $118,500 for the dwelling. The defendant appealed, arguing that the judge improperly took judicial notice of unsubstantiated and disputed facts to determine the diminished value of the home.

The Court of Appeals acknowledged that, in Tennessee, the proper measure of damages for injury to real property is the lesser of either: (1) the cost of repairing the injury, or (2) the difference in the value of the premises immediately prior to and immediately after the injury (also referred to as the diminution of property value). Generally, the measure of damages will be the cost of repairs unless the repairs are not feasible or the cost of repairs is disproportionate to the diminution in the value of the property. However, the court held that the burden was on the defendant to show that the cost of repairs was disproportionate to the diminution value. While recognizing that a property owner can testify as to the value of his home, the Court of Appeals found that the evidence regarding the post-loss value of the home was insufficient and unreliable. The Court of Appeals further held that the defendant had the burden of proving an alternative measure of damages. Since the defendant failed to carry its burden of proving the diminution of value measure of damages, the Court of Appeals ruled that the lower court should have calculated the damages based on the cost of repairs rather than seek out additional valuation evidence or take judicial notice of certain facts to reach a diminution value. The court remanded the case for further proceedings on the damages issue.

The Durnik case establishes that, in Tennessee, the defendant has the burden of introducing evidence of an alternative measure of damages to challenge the measure of damages presented by the plaintiff and that it is improper for the trial court to take judicial notice of an alternative measure of damages on its own. This case also reminds us of the importance of understanding the measures of damage potentially applicable to a case, and being prepared to offer sufficient evidence in support of the measure of damages that you wish to advance. This case also sheds light on the importance of knowing the value of your claim under each applicable measure of damages, as well as recognizing which measure of damages is likely to apply in your respective jurisdiction.


[1] During cross-examination, plaintiff vaguely testified that he believed that the value of the home on the day before the loss was $144,000, and that on the day after the loss the County Tax Assessor told him that the value was still $144,000. However, plaintiff produced a microbial remediation expert who testified that, because the water in the house remained untreated for over 72 hours, the home required more extensive remediation. Based on the expert’s testimony, the judge disregarded the plaintiff’s testimony about the post-loss value of the home and concluded that the value after the loss was zero because no one would buy the house in such condition. As such, the judge found that the diminished value was $144,000 (the full value of the home).

Policyholder Attorneys: Be Careful Playing the Odds During Trial on First-Party Coverage Disputes – It Could Land You Right Back in Front of a Jury

Erin Dunnavant | Property Insurance Coverage Law Blog | July 7, 2018

On July 5, 2018, the Fourth District Court of Appeals, (“Fourth DCA”) reversed a jury’s verdict for Homeowner Sanjay Kuwas based on his counsel’s improper arguments and examination of his insurance company’s litigation manager during trial.1

Kuwas’ home suffered property damage due to water losses that occurred in 2011 and 2015. He was insured by Homeowners Choice Property & Casualty Insurance Company (“Homeowners Choice”) during both losses and made claims on both losses that were ultimately denied. In response, Kuwas hired attorneys who sued Homeowner’s Choice for breach of contract. Among Homeowners Choice’s affirmative defenses filed in response to the lawsuit were:

  • The loss was excluded due to sewer backups;
  • Neglect of the insured to use all reasonable means to save and preserve the property after the loss;
  • Constant or repeated seepage or leakage; and
  • Inadequate maintenance.

Prior to trial, Homeowners Choice dropped the defense of sewer backups and proceeded on the other above-listed defenses.

During trial, counsel for Kuwas argued that Homeowners Choice was “playing the odds” when it denies a claim “in the hopes that the party who is seeking to be paid under a policy will not sue them.” Apparently Kuwas’s counsel argued these points on multiple occasions: during opening statement, while examining Homeowners Choice’s litigation manager, and during closing. For example, during closing, Kuwas’s counsel argued that,

Everything that one needed to know was stuff that [Homeowners Choice] knew from day one. And what they did was, they decided to play the odds. Right? We’ll talk a little bit about that. They decided, we’re going to play the odds. And we’re just going to disregard responsibilities that they have, personal responsibility.

Homeowner’s Choice objected to these comments as improper and during the opening and examination, some objections were sustained while others were overruled. The objections made during closing were overruled by the trial court.

Throughout trial Kuwas’ counsel also emphasized Kuwas’s payment of premiums. For example, Kuwas’s counsel argued during opening, “[s]o my client paid X [amount] year, after year, after year, after year from back in the ‘90s…” and then he segued into another comment about the insurance company having “played the odds.” Kuwas’s counsel also argued that Kuwas “deserves his house back because he paid not to be in this position.”

Finally, Kuwas made comments during trial that undermined, or as the court put it “disparaged” Homeowners Choice’s affirmative defenses. Among the comments by Kuwas’s counsel objected to by Homeowners Choice were, that the parties were “fighting like the dickens over whether or not a sewer backup is excluded. And then we come to court after all this litigation, after all of this depositions and motions, and whatnot… and [Homeowners’ Choice] comes in and says, oh, by the way, we just were kidding about that one…You know the plaintiff’s right, that doesn’t apply, okay, but let’s try something else, right?”

At the close of trial, the jury found for Kuwas and against Homeowners Choice, granting Kuwas a significant award. Afterwards, Homeowners Choice filed motions for new trial and to set aside the verdict, which were both denied.

Homeowners Choice appealed the jury’s verdict, arguing that the trial court erred in several ways, only one of which was analyzed by the Fourth DCA: whether the trial court had properly denied Homeowner’s Choice motion for new trial based on the improper arguments of Kuwas’s counsel and improper questioning of Homeowners Choice’s litigation manager. The Fourth DCA reversed on that issue and remanded the case for new trial.2

In its reversal, the court analyzed the lower court’s denial of Homeowner’s Choice’s motion for new trial using an “abuse of discretion” standard, which is a difficult standard to meet on appeal because the trial court—i.e., the judge with the front row seat—is usually given broad deference. The appellate court also looked at the standard that governs preserved issues of improper argument, which is “whether the comment was highly prejudicial and inflammatory”3 in performing its analysis.

Regarding counsel’s arguments regarding “playing the odds,” in light of Homeowners Choice’s arguments that such comments implied bad faith, or implied that Homeowners Choice denied policyholder claims for any or no reason, the Fourth DCA agreed with Homeowners Choice and found those comments were grounds for reversal. With respect to plaintiff counsel’s arguments regarding the payment of premiums, the Fourth DCA did not believe that the comments rose to a level requiring reversal, at least not on their own (although the appellate court acknowledged that such comments could be grounds for reversal, as Homeowners’ Choice argued and cited case law to support.4) Finally, with Kuwas’ counsel’s argument on disparaging Homeowners Choice’s affirmative defenses, the Fourth DCA also took Homeowners Choice’s side. Homeowners Choice argued that Kuwas’s comments implied that the jury should punish Homeowners Choice for defending itself against Kuwas’s claims. They also argued that Kuwas’ counsel made these arguments to attract the jury’s attention to irrelevant pretrial conduct, implying that Homeowners Choice should be penalized for requiring Kuwas to prove his case. Although Kuwas advanced rebuttal that these arguments were actually made to point out the differences between the denial letters and the affirmative defenses, that argument did not hold water with the Fourth DCA, who ultimately agreed with Homeowners Choice finding these comments were “so highly prejudicial and inflammatory such that [Homeowners Choice] was denied its right to a fair trial.”

As an advocate for policyholders, I typically prefer writing blogs about when an insured (and not an insurance company) prevails. However, after reviewing this case, I thought it was important to point out that it appears courts are holding insureds and their counsel accountable for making sure that even issues that could be construed as implying bad faith should be reserved for after battles over coverage are decided.
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1 Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 4D17-2383, 2018 WL 3301890, at *1 (Fla. 4th DCA July 5, 2018).
2 The other issues on appeal were either affirmed without discussion or were not addressed, as they were rendered moot by the reversal.
3 Murphy v. Int’l Robotic Sys., Inc., 766 So. 2d 1010, 1012 n.2 (Fla. 2000).
4 Government Employees Ins. Co. v. Kisha, 160 So. 3d 549, 552-53 (Fla. 5th DCA 2015)(where a discussion of the length of an insureds’ relationship with her insurer was found to be an impermissible plea for sympathy that impeded the jury’s ability to fulfill its duty of impartiality, and warranted a new trial).

All “Hail” the Importance of Documenting Claims

Stephen S. Asay | Pillsbury | June 29, 2018

A recent case in the Fifth Circuit, Certain Underwriters at Lloyd’s of London v. Lowen Valley View, L.L.C., provides a valuable reminder to policyholders of the importance of promptly investigating any event that could cause damage, documenting that damage shortly after it occurs, and putting insurers on notice of the potential claim. Failure to do so could forfeit the insurance available for otherwise covered losses.

In 2014, an employee of a Hilton Garden Inn in Texas noticed that the shingles on the roof “looked bad” and called a contractor to investigate. The contractor discovered evidence of significant hail damage, and the owner/operator of the hotel notified its insurance agent of the damage. The agent filed a notice of loss with the property insurer, Lloyd’s, the same day, listing the date of loss as June 13, 2012—about a year and a half prior to the date of notice. The agent based the date of loss on a weather history report that listed nine separate hail events of varying severity between January 2006 and December 2014.

After receiving the claim, Lloyd’s sent an adjuster to inspect the property. The adjuster determined that the roof would need to be replaced at an estimated cost of $429,000. Lloyd’s then retained an engineering firm to analyze the claim. The engineering firm confirmed that the damage was caused by hail and concluded that the most recent hailstorm with hailstones large enough to cause the damage was on June 13, 2012. In a second report, the engineering firm described its first report as concluding that the damage “most likely” occurred on June 13, 2012.

Lloyd’s then denied the claim and—the same day—filed a lawsuit seeking a declaratory judgment that it owed no coverage to the insured. After the lawsuit was filed, Lloyd’s engineering firm identified four different dates on which hail reports and weather radar data suggested there was hail at the location of the hotel. Only one of those four dates, June 13, 2012, fell within the relevant policy period, and the policyholder had no proof of when the damage actually occurred. The only evidence that it happened on June 13, 2012, was the engineering firm’s comment that the damage “most likely” occurred on that date, and the engineering firm stated that it never intended to suggest that June 13, 2012, was the known date of loss.

In Texas, as in most states, a policyholder bears the burden of establishing that its claim falls within the policy’s insuring provisions. The burden then shifts to the insurer to prove that the claim is not covered because of an exclusion or other coverage limitation. However, a policyholder cannot ignore that initial hurdle. Here, because the hail damage could have been caused by any of the four storms, three of which were outside the policy period, the policyholder had to present some evidence that would provide a reasonable basis on which to identify damages caused by the storm that occurred during the policy period. Because the evidence did not show which of the storms had damaged the hotel, the district court granted summary judgment in favor of Lloyd’s. The Fifth Circuit affirmed, agreeing that the policyholder failed to satisfy its initial burden of proof.

Even though the property insurance policy here may well have covered some or all of the damage, a lack of documentation prevented the policyholder from recovering those insurance proceeds. Let this be a reminder to document damages and promptly submit claims—or you too could be faced with a “hail” of losses for which you are stuck paying damages out of your own pocket.

When Does Time Start to Run for Limitation Purposes in Property Damage Claims Based on Negligence?

Seán Barton and Barrett Chapman | McCann FitzGerald | June 12, 2018

In a recent case, the Supreme Court has confirmed that time starts to run for limitation purposes in property damage claims based on negligence from the date when the damage is manifest.

In Brandley v Deane 1 a property developer brought proceedings in negligence against a consulting engineer and a building contractor when cracks appeared in certain properties. They had been retained to work on their construction. They admitted negligence but pleaded that the claim was statute barred as time had started to run against the plaintiff from the time defective foundations were laid and the plenary summons had issued more than six years after that date.

The question for the Supreme Court was: when does time run for the purposes of the Statute of Limitations for property damage claims founded in the tort of negligence? Two additional questions were central to any answer here, namely, when did the cause of action in negligence accrue and what constituted actionable “damage” for the purposes of the law of negligence?

The relevant text in the Statute of Limitations provides:

“[A]n action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.”

McKechnie J identified five distinct potential starting points for the running of the limitation clock:

  • Date the wrongful act was committed;
  • Date of occurrence of the damage;
  • Date of manifestation of the damage;
  • Date of discoverability of the damage; and
  • Date of actual discovery of the damage.

The first date was invariably the earliest and thus the most favourable to a defendant seeking to rely on the Statute of Limitations, with the other possibilities becoming increasingly preferable to the plaintiff as they moved towards the date of actual discovery. McKechnie J examined each option.

Date the wrongful act was committed: McKechnie J concluded that such a start point was precluded by the very wording of s11(2)(a) itself, which referred to the date of the accrual of the cause of action; clearly, that could not be before any damage had occurred, the same being an essential element of the tort of negligence.

Date of discoverability and date of actual discovery of the damage: The date of discoverability of the damage referred to the date when damage could or ought with reasonable diligence to have been discovered. This was distinct from the date of actual discovery of the damage, although those two dates might sometimes align. The date of discoverability was also distinct from the date of manifestation of damage which referred only to damage which was capable of discovery, whereas the date of discoverability imported an element of the damage being objectively reasonably discoverable, even if it in fact went undiscovered. There was no element of discoverability in the test in property damage claims. Despite the harshness that this could give rise to, such was the law, and it was not open to the court to read a discoverability test into s11(2)(a) even if it was minded to.

Date of occurrence or date of manifestation of the damage: McKechnie J noted that whilst the meaning of “occurred” was straightforward, it was not so easy to pin down precisely what was meant by “manifest”, and especially how one might differentiate it from the “discoverability test”. From the case law, he understood “manifest” to mean the date on which damage was capable of being discovered and proved by a plaintiff.

When interpreting an identical provision in respect of a personal injuries case, in Hegarty v O’Loughran 2 the Supreme Court had decided that the relevant start date in personal injuries cases was the date on which the personal injury was manifest. There was no reason why this date should not also be the proper start point in property damage claims, particularly as it was well understood that the potential for injustice to a plaintiff was every bit as real in such cases as in personal injuries claims.

What constitutes damage?

McKechnie J accepted that there was a definite distinction between a “defect” and the subsequent damage which it caused. Time ran from the manifestation of damage, rather than of the underlying defect. Thus it was not the latent defect which needed to be capable of discovery: it was the subsequent physical damage caused by that latent defect.

The Importance of the Subcontractor Exception to the “Your Work” Exclusion

John J. Kozak, Esq. | Florida Construction Law News | April 24, 2018

Commercial General Liability (CGL) policies typically include a “your work” exclusion, excluding coverage for “’property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’”  These CGL policies define “your work,” in pertinent part, as “work or operations performed by you or on your behalf.” (emphasis added).  As the recent case of Mid-Continent Cas. Co. v. JWN Construction, Inc., 2018 U.S. Dist. LEXIS 20529 (S.D. Fla. 2018) reminds us, the “your work” exclusion can serve to eliminate coverage for a general contractor, even when property damage is caused by a subcontractor.

In JWN Construction, Inc., a residential homeowner discovered water intrusion and related property damage and sued the general contractor, JWN, for damages.  In the ensuing declaratory judgment action filed by JWN’s CGL carrier, the carrier argued it owed no duty to defend or indemnify JWN in the underlying lawsuit under the “your work” exclusion, notwithstanding the fact that the home was actually constructed by a subcontractor of JWN.  The Court in JWN Construction, Inc. agreed with the carrier, granting summary judgment in the carrier’s favor and specifically holding that the “your work” exclusion applied to bar coverage for work performed by JWN’s subcontractor.  In so doing, the Court explained as follows:

If work was performed by JWN or on JWN’s behalf – here by a subcontractor – then the “your work” exclusion applies.  Historically, insurers could be liable under commercial general liability policies resembling the policy in question for certain types of damages caused by subcontractors, if the contract lacked specificity on this topic. Nonetheless, insurers do possess the right to define their coverage as excluding damages arising out of a subcontractor’s defective work by eliminating subcontractor’s exceptions from the policy.An insurer is only liable for a subcontractor’s defective work when the “your work” exclusion does not eliminate coverage for work performed by a subcontractor.  Here, the “your work” exclusion also excludes work performed by a subcontractor.  In conclusion, the insurance policy in this case excluded coverage for work performed not only by JWN, but also by JWN’s subcontractors. . .

Id. at *11-12 (citations omitted; available upon request).

As the Court in JWN Construction, Inc. suggests, the general contractor’s lack of coverage could have been avoided had the CGL policy’s “your work” exclusion included what is known as a “subcontractor exception.”  Under this exception, the “your work” exclusion “does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”  Without this exception in their CGL policies, general contractors may face the horrifying prospect of being sued for substantial damages related to latent defects caused by their subcontractors without any collectible CGL coverage.

To avoid this scenario, general contractors should consult with their insurance brokers and carefully review their CGL policy to ensure the “your work” exclusion includes a subcontractor exception.  This should include a careful review of all endorsements as certain policy endorsements may eliminate the subcontractor exception by expressly excluding coverage for work performed by a subcontractor.   If the “your work” exclusion in the policy does not include a subcontractor exception, general contractors should strongly consider purchasing the additional coverage afforded by the exception so as to avoid the coverage dilemma faced by the general contractor in JWN Construction, Inc.

If you have any questions about this topic, please do not hesitate to reach out to a member of CSK’s Construction Group.